Stock Market Reaction to the Resignation ofCompensation Committee Members: Evidencefrom Taiwan

This study investigates market reactions to the resignation of compensation committee members. First, we find a significantly negative market reaction when independent directors resign. Second, when members resign for a busy reason, the market appears to consider the resignation as a signal of poor performance or weak corporate governance and thus responds negatively. Third, the resignation of members with academic background or practice experiences causes an unfavorable market reaction. Our main contribution is being the first study to document that resignation of compensation committee members provides crucial information about compensation committee performance from the market participants’ perspective. Key words: Corporate governance, compensation committee, resignation